Strategic Management Research Portfolio: Fonterra Analysis

This report provides a comprehensive strategic analysis of Fonterra, a major agribusiness cooperative. It begins with an overview of the company, its product lines, and business units, highlighting the significance of its revenue streams. The report then delves into an analysis of Fonterra's external environment using the PESTLE framework, examining political, economic, social, technological, environmental, and legal factors impacting the company's operations in Australia and globally. Following this, an internal analysis is conducted, evaluating Fonterra's internal competitiveness, capabilities, core competencies, and competitive advantages using the VRIO framework. The report concludes with strategic recommendations for Fonterra's future direction, emphasizing cooperative business models, product development, environmental sustainability, and market expansion. The report is structured with an overview, analysis of internal and external environments, and recommendations for strategic direction.

Running Head: STRATEGIC MANAGEMENT 0
RESEARCH PORTFOLIO

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Contents
Overview...................................................................................................................................2
Fonterra product lines and business units.............................................................................3
Analysis of Fonterra internal environment...........................................................................5
Recommendations....................................................................................................................7
Conclusion.................................................................................................................................7
References.................................................................................................................................8

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Overview
Agribusiness in Australia has and will always be one of this nation industry pillars. There are
many local and global forces getting increasing attention and where retailers, traders and
processors have all seen changes in their markets (Purves, Niblock and Sloan, 2015).
Agribusiness Australia’s inclusive industry approach enables the industry to be a coherent
association and support rural communities and contribute significantly to the national
economy.
The competition is continuously increasing in the agribusiness of Australia and to survive in
this competitive market, an organisation needs to adopt strategic management practises. With
proper strategic planning, an organisation can recognise their ability and competitiveness in
extent with both long and short term goals and then identify the necessary decisions and
actions that need to be taken to attain those goals.
Considering a global organisation, Fonterra cooperative company is selected for this
assignment which is owned by 10000 farmers and united by a fundamental belief in power of
dairy to make a difference (newsie.co, 2018). The headquarter of the organisation is situated
in New Zealand. The company was founded in 2001 and currently employs more than 21000
employees to lead as a massive dairy exporter. In 2018 the company generated total revenue
of $18,934,257,000 including sales and other revenue (Ibisworld.com, 2018). Moreover, they
have various strategic alliance at international level that helps the company to become an
international exporter of dairy products. Fonterra also has various subsidiaries including
Mainland Cheese, Anchor and Soprole. The company summarise their philosophy to produce
great dairy products and build a long-lasting commitment with the consumers.
This work extends towards external business environment of Fonterra which build up the
internal competitiveness of the company and help in identifying and executing their
competitive advantage in the whole industry. In last, necessary recommendation is being
made in relation to management and operations of Fonterra in Australia and at global level.

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Fonterra product lines and business units
In Australian agriculture market, Fonterra comprises of various numbers of businesses in
respect with serving both consumer and industrial needs. Their portfolio of well-known
brands includes Anchor, Anmum, Anlene, NZMP and Farm Source inclusive of supplies of
dairy ingredients. All are made using trusted processes with highest quality natural dairy and
are loved by consumers in Australia and around the world. Hence, the company provide
many sorts of offerings to its diverse customer segment. For instance, the consumer good
section and product portfolio include Western Star butter, Perfect Italiano ready to make
meals, Bega cheese and Anchor milk. Fonterra also supplies dairy ingredients to many food
manufacturers globally and in Australia and in this way industrial needs is also being
fulfilled.
Fonterra earns major portion of their revenue from the customer division and it also heavily
determined the brand value of Fonterra (Walker, 2017). The company also have a food
service division by which Fonterra provides various range of branded dairy products to Café,
restaurants, fast food outlets and other identical businesses. In addition, this division works
strictly with caterers and Chefs to produce more tailored products.
Analysis of Fonterra external environment
For analysing the company external environment, PESTLE strategic tool will be used to
identify various factors that significantly impact the firm macro environment. Changes in
business macro environment impact the firm in shaping strategy and competitive landscape
(Bouhali et al, 2015).
1. Political aspects - The present governance system in Australia has served its purpose
for a long time and play a critical role in policy making and regulations in Australia.
Fonterra gains many benefits from the Australia government (Friel et al, 2016).
Livestock sector is being promoted by Australian government to meet the increasing
demand for dairy and meat. In addition, Fonterra can effectively export their business
products to other countries due to positive association of Australian country with
other nations all around the economy. Though in future, if the government make

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stringent policies in support of meat production, this may hamper the Fonterra
business to a great extent.
2. Economic aspects – The business performance of Fonterra is closely linked with the
economic performance of Australian economy. Increase in dairy products demands
shows positive interactions towards Fonterra exports. Though many other
agribusiness brands are entering in Australia and this will impact the business
potential of Fonterra. On the other hand, Australian taxation policy is getting more
complex and this will lead to increase in product prices by Fonterra.
3. Social aspects – The society of Australia is different from the home market of
Australia and the company is required to develop a local team to understand the
societal norms to effectively serve the customers of Australia (Zheng et al, 2015). One
of the major trends is consumption of veggie foods in Australian society that will
directly reduce the demand for dairy products of Fonterra. However, In Australian
cuisines, the demand for cheese is rising and this is positive for Fonterra business. In
addition, many customers of Fonterra are also concerned about greater fats in the
dairy products and it requires the company to update its product portfolio. Moreover,
due to presence of large number of suppliers of dairy products, the customer is
becoming more expertise and the company need to undertake several strategies to
satisfy the rising customer expectations.
4. Technological aspects – In Australia, both government and private players are
spending various resources in developing new solutions and creating disruption in the
market. Fonterra has also adopted technological advancement trend in its breeding
and manufacturing operations. Fonterra production is full automotive that gives the
company a competitive edge over the competitors. Though, the company is required
to meet the rising demands of the customers by investing more in research and
development.
5. Environmental aspects – Australian environmental standards are very tight due to
prevailing issues related to air and water pollution. In addition, Greater awareness
among customers has also put environmental factors at the centre of Fonterra core
strategy. This requires Fonterra to sustain its business as per those set standards as the
company already faced several issues in its home country i.e. New Zealand. Fonterra
fined $170,000 for Rangitāiki River pollution, which the local regional council says is
a significant taonga for iwi (Cook, 2015).

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6. Legal aspects – The Australia legal policies are very much strict and Fonterra is
following the primary processing and production standards. In many nations, the
company products are being exported and each countries business law is different.
This requires the company to positively adhere to each country laws.
Analysis of Fonterra internal environment
It includes internal competitiveness of Fonterra, identifications of the capabilities, Fonterra
core competencies and the company competitive advantage in extent with VRIO framework.
Internal competitiveness of Fonterra
The internal competitiveness of Fonterra can be evaluated with the help of resource-based
view that recognises Fonterra has both tangible and intangible resource. The tangible
resources of Fonterra include its machinery, manufacturing facilities and human resource. In
dairy industry, these productive tangible resources help the company to achieve competitive
edge. On the other hand, the intangible resources of Fonterra include its market brand value,
exposure in different markets and economies, and quality attribute that benefit the
organisation to be distinct in the marketplace (Lees and Lees, 2018).
Fonterra capabilities
Fonterra capabilities build with their innovative learning and development programmes. One
of their significant capability is linked to their approach with human resource management
where the organisation consider emotional intelligence as a management tool to deal with
employees effectively. The company organisation structure is also flexible in extent with
their internal process and practices that help Fonterra to proactively react with the change in
environmental factors and this help the company to be less impact with the industry corporate
practices. Considering their internal capability, market orientation is also one of their major
business practice that helps Fonterra to meet up demand in align with increased expectations
of customers (Fayezi and Zomorrodi, 2015). Fonterra always does one step ahead of market
competition due to an effective correlation between their internal and external capabilities.
Fonterra core competencies

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Fonterra built their expertise on the legacy of the thousands of farmers who have made New
Zealand a world leader in dairy. The company expands into several countries such as
Australia, UK, US and China. This composes the Fonterra core competency as a global
presence in the world. In addition, the organisation have also made many joint ventures and
acquisitions so as to attain economy of scale and fulfil more market expectations of
customers. With this, Fonterra also gets a global recognition all over the world and this
benefit the company to introduce its new products effectively in those markets. The company
competency can also evaluated with its broad product portfolio that is fulfilling the needs of
both industrial and customer sectors. Fonterra approach of dairy cooperative also reflects
their other core competency as unlike their key competitors, the company source milk
directly from farmers and eliminate intermediaries to give effective supply of its raw
materials (Leslie, et al 2018).
Fonterra competitive advantage
VRIO analysis of Fonterra comprises value of the resources that Fonterra Dairy has, rarity of
those resources, how easily the resources can be imitated by Fonterra Dairy competitors, and
how the firm is organized – technology implementation, organization structure, processes,
policies, culture etc. to make optimum use of the resources in order to sustainable competitive
advantage (Knott, 2015).
 Valuable – Fonterra brand value represents its key valuable resource that helps the
brand to raise its brand awareness in most of the countries in the world. This
indirectly raises profitability when the company introduce new products in the market.
In addition, the position in technological implantation in its production is also
considered as a competitive advantage as this help Fonterra to have less average cost
of production as well as in keeping updated production.
 Rarity – The company gain access to the local farmers in form of cooperative and
with them, they supply pure milk to both consumer and industrial sectors with
removing of various intermediaries. Many in the industry does not have this
advantage and this benefit Fonterra in extent with good quality and lower cost of raw
materials.
 Inimitability – In terms of inimitability, Fonterra competitive advantage is in relation
to their approach towards HRM as the company follow broad employment
management strategies that are not identified by anyone (Johnstone and Wilkinson,

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2016). This gives them competent and diverse employees that help the organisation in
achieving its strategic goals.
 Organisational capability – Fonterra is able to effectively operate in the
comprehensive market due to its number of capabilities inclusive of its business units
and product lines. It helps the company to fulfil the diverse needs of the customers.
Recommendations
Fonterra is doing well in terms of agribusiness in comparison with its competitors. However,
in respect with foreign countries, the organisation should have cooperative mode of business
as this will benefit Fonterra to gain competitive edge in the Australian market.
Fonterra needs to also focus on their product development and should introduce various
dairy-based products in the marketplace such as Ice-cream, curd and buttermilk. This will not
only increase the sales but also attracts more numbers of customers towards the brand.
Fonterra needs to focus on environmental sustainability standards as earlier the company was
fined heavily in New Zealand in relation to environmental degradation. This will directly
improve their brand identity in the market.
The company is required to focus upon market development strategy by targeting various
developing countries having positive growth rates and market opportunities. This will lead to
the organisation to attain economies of scale.
Conclusion
Fonterra has maintained a strong global presence and market competitiveness with offering of
both consumer and industrial products. The company philosophy of being a leader of dairy
foods is fulfilling in the right way and also effectively organised by the groups of farmers.
Fonterra is a dairy giant of modern world as they offering many sorts dairy products such as
butter, milk powder and cheese. Wide selections of brands are linked for packaging,
marketing and distribution of these products. A large number of high-class healthy brands
such as Annum, Anchor, and Tip Top are spreading commodities across the globe.

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In future, the company need to proactively react with the changing market needs and
environment variable in order to achieve competitive advantage in the industry.

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References
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Strategic thinking and planning. Procedia-Social and Behavioral Sciences, 181(1), pp.72-78.
Cook, A. (2015) Fonterra fined $170,000 for Rangitāiki River pollution [ONLINE] Available
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rangitaiki-river-pollution [Accessed 31/03/2019].
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(2016) Shaping the discourse: What has the food industry been lobbying for in the Trans
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competencies in development studies. Asia Pacific Viewpoint, 59(2), pp.235-245.

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